Ernst’s Electrical has a bond issue outstanding with ten years to maturity. These bonds have a $1,000 face value, a 5 percent coupon, and pay interest semi-annually. The bonds are currently quoted at 96 percent of face value. What is Ernst’s pre-tax cost of debt? A) 4.47 percent B) 4.97 percent C) 5.33 percent D) […]
Date: September 19th, 2020
All of the following are weaknesses of the payback period EXCEPT: A) a disregard for cash flows after the payback period. B) only an implicit consideration of the timing of cash flows. C) the difficulty of specifying the appropriate payback period. D) it uses cash flows, not accounting profits. ANSWER D
Date: September 19th, 2020
The typical real estate commission is between 2 and 3 percent of the homes selling price. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
FICA taxes include two components these consist of A) old age-disability and health insurance. B) unemployment compensation and disability insurance. C) old age and unemployment compensation insurance. D) accident and disability insurance. ANSWER A
Date: September 19th, 2020
Blackwater Adventures has a bond issue outstanding that matures in sixteen years. The bonds pay interest semi-annually. Currently, the bonds are quoted at 103 percent of face value and carry a 9 percent coupon. The firm’s tax rate is 34 percent. What is the firm’s after-tax cost of debt? A) 5.19 percent B) 5.71 percent […]
Date: September 19th, 2020
Opportunity costs include only out-of-pocket expenses. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
The cost of owning an automobile represents a fixed cost. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
A $1,000 par bond is currently selling for $1,100. It has a 9% coupon rate, fifteen years remaining to maturity, and pays interest semi-annually. If the firm’s tax rate is 35%, what is the after-tax cost of debt? A) 9.00% B) 7.84% C) 6.07% D) 5.85% E) 5.10% ANSWER E
Date: September 19th, 2020
Among the reasons many firms DON’T use the payback period as a guideline in capital investment decisions are all of the following EXCEPT: A) it gives consideration to the timing of cash flows. B) it uses an appropriate measure of risk. C) it recognizes cash flows which occur after the payback period. D) it is […]
Date: September 19th, 2020
Interest payments on auto loans are not tax-deductible. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
